{"id":2106,"date":"2026-09-18T14:53:36","date_gmt":"2026-09-18T14:53:36","guid":{"rendered":"https:\/\/www.m1xchange.com\/thought-xchange\/?p=2106"},"modified":"2026-09-18T14:59:48","modified_gmt":"2026-09-18T14:59:48","slug":"msme-form-1-and-section-43bh-one-root-cause-two-compliance-obligations","status":"publish","type":"post","link":"https:\/\/www.m1xchange.com\/thought-xchange\/msme-form-1-and-section-43bh-one-root-cause-two-compliance-obligations\/","title":{"rendered":"MSME Form 1 and Section 43B(h): One Root Cause, Two Compliance Obligations"},"content":{"rendered":"\n<p><strong>31 October 2026 is the next MSME Form 1 filing deadline. For finance teams, the more important date may be the day an MSE payable crosses its statutory payment window.<\/strong><\/p>\n\n\n\n<p>A delayed payment to a Micro or Small enterprise is no longer only an accounts-payable issue. The same underlying delay can create consequences under company law, the MSMED Act and income-tax law.<\/p>\n\n\n\n<p>For the April\u2013September 2026 half-year, specified companies with payments pending to Micro or Small enterprises for more than 45 days must furnish MSME Form 1 by <strong>31 October 2026<\/strong>. The reporting obligation arises under Section 405 of the Companies Act, 2013 and the Specified Companies Order, as amended in 2024.<\/p>\n\n\n\n<p>At the same time, delayed payments to qualifying Micro and Small enterprise suppliers can affect the timing of tax deductions under Section 43B(h).<\/p>\n\n\n\n<p>The two provisions operate differently. But for CFOs, finance controllers, treasury teams and accounts-payable leaders, they point to the same operational question:<\/p>\n\n\n\n<p><strong>How is the organisation managing MSE supplier payments before they become overdue?<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>MSME Form 1: What Companies Need to Know Before 31 October<\/strong><\/h2>\n\n\n\n<p>MSME Form 1 is a half-yearly return under Section 405 of the Companies Act, 2013. It was introduced through the Specified Companies (Furnishing of Information about Payment to Micro and Small Enterprise Suppliers) Order, 2019.<\/p>\n\n\n\n<p>A significant change came in July 2024. The amended Order expressly limits the filing requirement to specified companies having payments pending to any <strong>Micro or Small enterprise for more than 45 days<\/strong> from the date of acceptance or deemed acceptance of goods or services.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">For the current cycle:<\/h2>\n\n\n\n<p><strong>Reporting period:<\/strong> April\u2013September 2026<br><strong>Filing deadline:<\/strong> 31 October 2026<br><strong>Filed with:<\/strong> Registrar of Companies through MCA<br><strong>Relevant suppliers:<\/strong> Micro and Small enterprises<br><strong>Reporting trigger:<\/strong> Payments pending for more than 45 days from acceptance or deemed acceptance<\/p>\n\n\n\n<p>Medium enterprises do not fall within this particular Form 1 reporting requirement.<\/p>\n\n\n\n<p>The important distinction is that MSME Form 1 is not simply a list of all purchases made from MSMEs. It is a statutory disclosure linked to delayed payments to qualifying Micro and Small suppliers.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>The V3 Form Makes Payment Ageing More Visible<\/strong><\/h2>\n\n\n\n<p>The revised MSME Form 1 became web-based as part of MCA&#8217;s V3 rollout in July 2024. The revised framework captures transaction and payment information in considerably greater detail.<\/p>\n\n\n\n<p>MCA&#8217;s own V3 FAQs identify reporting categories including the number and value of transactions <strong>paid within 45 days, paid after 45 days, outstanding for 45 days or less, and outstanding for more than 45 days<\/strong>, with transaction-level reporting supported up to the prescribed limits.<\/p>\n\n\n\n<p>That changes the practical compliance conversation.<\/p>\n\n\n\n<p>Accounts payable can no longer be viewed only through the lens of aggregate supplier ageing. Finance teams need visibility into the underlying MSE status, invoice acceptance date, payment status and ageing of relevant transactions.<\/p>\n\n\n\n<p>In other words, <strong>MSE payment ageing is becoming a compliance data point, not merely a treasury metric.<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Non-Filing Can Create a Separate Penalty Exposure<\/strong><\/h2>\n\n\n\n<p>Where a specified company is required to furnish MSME Form 1 but fails to comply, Section 405(4) of the Companies Act provides for monetary penalties.<\/p>\n\n\n\n<p>The prescribed exposure is commonly stated as:<\/p>\n\n\n\n<ul>\n<li><strong>\u20b920,000<\/strong> on the company<\/li>\n\n\n\n<li><strong>\u20b920,000<\/strong> on every officer in default<\/li>\n\n\n\n<li>For continuing failure, a further <strong>\u20b91,000 per day<\/strong><\/li>\n\n\n\n<li>Continuing penalty subject to the statutory maximum of <strong>\u20b93 lakh<\/strong><\/li>\n<\/ul>\n\n\n\n<p>This is separate from the commercial amount actually owed to the MSE supplier.<\/p>\n\n\n\n<p>The filing obligation therefore creates an additional compliance layer around a payment delay that already exists in the accounts-payable ledger.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>One Payment Delay Can Also Become a Tax Issue<\/strong><\/h2>\n\n\n\n<p>This is where MSME Form 1 and Section 43B(h) converge operationally.<\/p>\n\n\n\n<p>Section 43B(h) links the timing of deduction for sums payable to qualifying Micro and Small enterprises to the payment timeline prescribed under Section 15 of the MSMED Act.<\/p>\n\n\n\n<p>That timeline is more nuanced than simply saying \u201c45 days.\u201d<\/p>\n\n\n\n<p>Where there is a written agreement, payment must be made within the agreed period, which cannot exceed <strong>45 days<\/strong> from acceptance or deemed acceptance. Where there is no written agreement governing the payment period, the statutory timeline can effectively be <strong>15 days<\/strong>.<\/p>\n\n\n\n<p>If the payment falls outside the applicable Section 15 timeline, Section 43B(h) can defer the corresponding business-expense deduction until the year in which the amount is actually paid.<\/p>\n\n\n\n<p>This makes supplier classification and invoice ageing relevant not only to accounts payable, but also to tax computation.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>MSME Form 1 vs Section 43B(h): Different Laws, Same Payment Discipline<\/strong><\/h2>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><\/td><td><strong>MSME Form 1<\/strong><\/td><td><strong>Section 43B(h)<\/strong><\/td><\/tr><tr><td>Regulatory context<\/td><td>Companies Act, 2013<\/td><td>Income-tax framework<\/td><\/tr><tr><td>Core purpose<\/td><td>Disclosure of qualifying delayed MSE payments<\/td><td>Timing of deduction for qualifying MSE payments<\/td><\/tr><tr><td>Relevant suppliers<\/td><td>Micro &amp; Small<\/td><td>Micro &amp; Small<\/td><\/tr><tr><td>Key payment reference<\/td><td>More than 45 days pending for Form 1 reporting<\/td><td>Section 15 MSMED timeline: agreed period up to 45 days; shorter rule where no written agreement<\/td><\/tr><tr><td>Primary consequence<\/td><td>ROC\/MCA reporting and non-compliance penalty exposure<\/td><td>Deduction may shift to year of actual payment<\/td><\/tr><tr><td>Business owner internally<\/td><td>Finance \/ Accounts \/ Secretarial<\/td><td>Finance \/ Tax \/ Accounts<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>The provisions should therefore not be treated as two isolated year-end exercises.<\/p>\n\n\n\n<p><strong>The root operational issue is MSE payment discipline.<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Consider a Buyer With Three Overdue MSE Invoices<\/strong><\/h2>\n\n\n\n<p>Assume a company has three accepted invoices from qualifying Micro enterprise suppliers:<\/p>\n\n\n\n<p><strong>Invoice A:<\/strong> \u20b912 lakh<br><strong>Invoice B:<\/strong> \u20b98 lakh<br><strong>Invoice C:<\/strong> \u20b95 lakh<\/p>\n\n\n\n<p>All three remain pending for more than 45 days.<\/p>\n\n\n\n<p>The total overdue MSE payable is <strong>\u20b925 lakh<\/strong>.<\/p>\n\n\n\n<p>For MSME Form 1, the company must evaluate the transactions against the applicable reporting requirements for the relevant half-year and furnish the prescribed information where the statutory conditions are met.<\/p>\n\n\n\n<p>For tax, the company separately needs to assess the payments under Section 43B(h) and Section 15 of the MSMED Act. If the relevant expenditure remains unpaid beyond the applicable statutory period, its deduction timing can be affected.<\/p>\n\n\n\n<p>The \u20b925 lakh commercial payable has therefore generated <strong>two separate compliance workstreams from one payment-ageing problem<\/strong>.<\/p>\n\n\n\n<p>And non-filing of a required MSME Form 1 creates its own Section 405(4) penalty exposure; that penalty should not be confused with the \u20b925 lakh payable or the amount potentially affected for tax-deduction purposes.<\/p>\n\n\n\n<p><strong>The Better Approach: Manage the Payment Before It Becomes a Compliance Exception<\/strong><\/p>\n\n\n\n<p>Most compliance responses begin after an invoice has crossed the threshold.<\/p>\n\n\n\n<p>The finance team identifies overdue invoices.<br>Secretarial teams prepare the ROC disclosure.<br>Tax teams examine Section 43B(h).<br>Accounts teams reconcile supplier classifications and payment dates.<\/p>\n\n\n\n<p>That is necessary once an exception exists.<\/p>\n\n\n\n<p>But there is another way to look at the problem:<\/p>\n\n\n\n<p><strong>Instead of improving the reporting of delayed MSE payments, reduce the number of MSE payments that become delayed in the first place.<\/strong><\/p>\n\n\n\n<p>This is where TReDS can become relevant to the payment architecture.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>How TReDS Changes the Supplier Payment Cycle<\/strong><\/h2>\n\n\n\n<p>On TReDS, an eligible MSME receivable accepted by the buyer can be presented to permitted institutional financiers for competitive bidding. If the Buyer\/seller accepts a suitable bid, the financier provides the early payment, while the buyer settles the financing obligation at maturity through the TReDS process.<\/p>\n\n\n\n<p>On M1xchange, the stated process enables an approved invoice to be financed and the MSME to receive funds within <strong>24 hours following the applicable financing process\/bid acceptance<\/strong>.<\/p>\n\n\n\n<h1 class=\"wp-block-heading\">The commercial effect is significant:<\/h1>\n\n\n\n<p><strong>Accepted Invoice \u2192 Financier Bid \u2192 Supplier Receives Early Payment \u2192 Buyer Settles at Maturity<\/strong><\/p>\n\n\n\n<p>For the supplier, a receivable that might otherwise remain locked in a 30-day, 45-day, or longer payment cycle can be converted into liquidity much earlier.<\/p>\n\n\n\n<p>For the buyer, TReDS creates a structured mechanism for enabling early supplier liquidity without necessarily shortening its underlying commercial payment term.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>From Compliance After the Event to Payment Architecture by Design<\/strong><\/h2>\n\n\n\n<p>This is the more useful way for finance leaders to think about TReDS.<\/p>\n\n\n\n<p>MSME Form 1 tells the organisation <strong>which qualifying payments have already crossed the reporting threshold<\/strong>.<\/p>\n\n\n\n<p>Section 43B(h) tells the organisation <strong>what delayed payment can mean for tax deduction timing<\/strong>.<\/p>\n\n\n\n<p>TReDS addresses the transaction <strong>earlier in the cycle<\/strong>, by creating a route for an accepted MSME receivable to be financed before the supplier has to wait for the buyer&#8217;s contractual settlement date.<\/p>\n\n\n\n<p>That moves the conversation from:<\/p>\n\n\n\n<p><strong>How do we manage overdue MSE invoices?<\/strong><\/p>\n\n\n\n<p>to:<\/p>\n\n\n\n<p><strong>How do we design supplier-financing processes that reduce dependence on delayed supplier cash flows?<\/strong><\/p>\n\n\n\n<p>There is, however, an important compliance distinction. <a href=\"https:\/\/www.m1xchange.com\/treds\/\"><strong>TReDS<\/strong><\/a> early payment should not be presented as automatically extinguishing every buyer obligation under MSME Form 1 or Section 43B(h) in every transaction structure. The legal and tax treatment depends on the transaction, assignment\/payment mechanics and applicable statutory interpretation. Companies should validate that treatment with their legal, tax and secretarial advisers.<\/p>\n\n\n\n<p>The defensible proposition is stronger precisely because it avoids overclaiming: <strong>TReDS provides a structural early-payment mechanism that can help organisations align supplier-liquidity processes with tighter MSE payment discipline.<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What Finance Teams Should Review Before 31 October 2026<\/strong><\/h2>\n\n\n\n<p>With the April\u2013September filing deadline approaching, companies should review four areas now:<\/p>\n\n\n\n<ul>\n<li>Validate the Udyam status and classification of relevant suppliers.<\/li>\n\n\n\n<li>Reconcile acceptance\/deemed-acceptance dates with invoice ageing and actual payment dates.<\/li>\n\n\n\n<li>Identify payments pending beyond 45 days for MSME Form 1 assessment.<\/li>\n\n\n\n<li>Reconcile the same supplier population separately for Section 43B(h), including the applicable 15-day or agreed-period-up-to-45-day timeline.<\/li>\n\n\n\n<li>Evaluate whether TReDS can be embedded earlier in the supplier-payment workflow for eligible accepted invoices.<\/li>\n<\/ul>\n\n\n\n<p>The objective is not merely to file accurately on 31 October.<\/p>\n\n\n\n<p>It is to build a payment process that creates fewer compliance exceptions in the first place.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Frequently Asked Questions<\/strong><\/h2>\n\n\n\n<p><strong>Who is required to file MSME Form 1?<\/strong><strong><br><\/strong> Under the amended framework, specified companies having payments pending to Micro or Small enterprises for more than 45 days from acceptance or deemed acceptance are required to furnish MSME Form 1.<\/p>\n\n\n\n<p><strong>What is the MSME Form 1 deadline for April\u2013September 2026?<\/strong><strong><br><\/strong> The half-yearly return for April\u2013September is due by <strong>31 October<\/strong>. Accordingly, the April\u2013September 2026 return is due on <strong>31 October 2026<\/strong>.<\/p>\n\n\n\n<p><strong>Do Medium enterprises come under MSME Form 1?<\/strong><strong><br><\/strong> No. The relevant Order refers specifically to payments pending to <strong>Micro or Small enterprises<\/strong>.<\/p>\n\n\n\n<p><strong>What if the company has no qualifying payments pending beyond 45 days?<\/strong><strong><br><\/strong> The 2024 amendment states that only specified companies having payments pending to Micro or Small enterprises for more than 45 days shall furnish MSME Form 1.<\/p>\n\n\n\n<p><strong>What is the penalty for failing to file MSME Form 1 when required?<\/strong><strong><br><\/strong> Non-compliance falls under Section 405(4). The penalty is \u20b920,000 for the company and every officer in default, with an additional \u20b91,000 per day for continuing failure, subject to the statutory maximum.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Conclusion: The Deadline Is 31 October. The Real Work Starts Earlier.<\/strong><\/h2>\n\n\n\n<p>MSME Form 1 and Section 43B(h) sit under different statutory frameworks and create different consequences. But both create compliance exposure tied to the same underlying trigger: MSE payment ageing beyond 45 days<\/p>\n\n\n\n<p>The answer cannot be limited to better reporting after invoices become overdue.<\/p>\n\n\n\n<p>It requires better visibility into MSE suppliers, acceptance dates, payment ageing and the financing routes available before liquidity becomes constrained.<\/p>\n\n\n\n<p><strong>M1xchange TReDS enables eligible MSME suppliers to access early liquidity against accepted invoices through competitive financier participation, while buyers continue to manage settlement through a structured digital framework.<\/strong><\/p>\n\n\n\n<p><strong>Move from managing delayed-payment exceptions to enabling early supplier liquidity.<\/strong><\/p>\n\n\n\n<p><strong>Explore <a href=\"https:\/\/www.m1xchange.com\/treds\/\">TReDS<\/a> with M1xchange.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<div class=\"tmnf_excerpt\">31 October 2026 is the next MSME Form 1 filing deadline. For finance teams, the more important date\u2026<\/div>","protected":false},"author":1,"featured_media":2107,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[69],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>MSME Form 1 and Section 43B(h): One Root Cause, Two Compliance Obligations - M1xchange<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.m1xchange.com\/thought-xchange\/msme-form-1-and-section-43bh-one-root-cause-two-compliance-obligations\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"MSME Form 1 and Section 43B(h): One Root Cause, Two Compliance Obligations - M1xchange\" \/>\n<meta property=\"og:description\" content=\"31 October 2026 is the next MSME Form 1 filing deadline. 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For finance teams, the more important date may be the day an MSE payable crosses its statutory payment window. A delayed payment to a Micro or Small enterprise is no longer only an accounts-payable issue. 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